NRA reports restaurant industry outlook falls slightly

June 29, 2009

WASHINGTON, D.C. -- The outlook for the restaurant industry was dampened somewhat in May, as the National Restaurant Association's comprehensive index of restaurant activity registered its first decline in five months.

The association's Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 98.3 in May, down 0.3 percent from April and its 19th consecutive month below 100.

"With the performance of the current situation indicators holding relatively steady in May, the RPI's decline was the result of restaurant operators' dampened outlook for each of the four forward-looking indicators," said Hudson Riehle, senior vice president of Research and Information Services for the association. "Although restaurant operators remain relatively optimistic that economic conditions will improve in six months, their outlook for sales growth and capital spending activity softened somewhat."

The RPI is based on the responses to the NRA's Restaurant Industry Tracking Survey, which is fielded monthly among restaurant operators nationwide on a variety of indicators including sales, traffic, labor and capital expenditures. The RPI consists of two components – the Current Situation Index and the Expectations Index. The full report is available online.

The RPI is constructed so that the health of the restaurant industry is measured in relation to a steady-state level of 100. Index values above 100 indicate that key industry indicators are in a period of expansion, while index values below 100 represent a period of contraction for key industry indicators.

Current Situation Index

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 96.9 in May – down 0.1 percent from April. In addition, May represented the 21st consecutive month below 100, which signifies contraction in the current situation indicators.

Restaurant operators reported negative same-store sales for the 12th consecutive month in May, with results similar to the April performance, including:

Twenty-six percent of restaurant operators reported a same-store sales gain between May 2008 and May 2009, matching the proportion who reported a sales gain in April.

Capital spending activity remained relatively steady, despite the continued soft sales and traffic levels. Forty-one percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, down from 43 percent who reported similarly last month.

Expectations Index

The Expectations Index, which measures restaurant operators' six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 99.6 in May – down 0.5 percent from April and its first decline in six months. April's level of 100.2 represented the first time in 18 months that the Expectations Index surpassed 100, which signifies expansion in the forward-looking indicators.

The May decline in the Expectations Index was due in part to a dampening in restaurant operators' outlook for sales growth, which includes:

Twenty-nine percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down from 33 percent last month.

In comparison, 33 percent of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year, up from 30 percent who reported similarly last month.

Despite the softer sales outlook, restaurant operators remained relatively optimistic that the economy will improve in the months ahead, which includes:

Thirty-four percent of restaurant operators expecting economic conditions to improve in six months, down slightly from 37 percent who reported similarly last month.

Seventeen percent of operators expecting economic conditions to worsen in six months, roughly on par with the 16 percent who reported similarly last month.

After rising to a 10-month high last month, restaurant operators scaled back on plans for capital expenditures in the months ahead. Forty-one percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, down from 46 percent who reported similarly last month.

While the RPI is released on the last business day of each month, more detailed data and analysis can be found on Restaurant TrendMapper, the association's subscription-based service that provides detailed analysis of restaurant industry trends. Follow Restaurant TrendMapper on Twitter @trendmapper.